Good afternoon, everyone, welcome to TR's first half 2026 results presentation. It's going to be conducted, as usual, by our Chairman, Juan Lladó, and our CEO, Eduardo San Miguel. It's going to last approximately 25 minutes, you will be able to pose your questions after the final remarks. Now I leave the floor to our Chairman, Juan Lladó.
Thank you. Thank you very much, Antonio, good afternoon to everyone. It is a pleasure to have you all here being able to start with this very important Q2 presentation. Allow me now to quickly walk you through today's agenda. I will start, as most of the time, with the main highlights for this first six months. Then I'll walk you through two very important awards taking place this last quarter. Eduardo then will step in to talk about our company, TR Power, and its remarkable first step in our North American momentum, which is very important. Our services, then the utilizations, IE, and robotics. I will finally close with some remarks and our guidance. Let me start with the key highlights. In this case, the key highlight, I guess the most important one, is this Q2 performance.
I like to be very brief. The important number here is 73. 73 EBIT signifies the 5% of our sales, a decent level of sales of EUR 1,478 million and a net cash of EUR 344 million. Very important here, zero provisions. This is the important message here. The fact that we have a decent cash, no provisions, and decent levels of sales also shows how the Middle East projects are moving and progressively moving back to normal. If we want to analyze the full semester, both quarters, it has to be compared with the same period last year. Now what you see, that sales semester against semester have grown by 12% to EUR 3,061 billion. Also the net cash, if you compare last year with this year, increases by almost EUR 100 million.
Obviously, this first semester, our EBIT is EUR 104, as we have to maintain the EUR 45 million provision. Finally, some messages that goes together with the numbers. Middle East execution is moving to normal. That's one message. It is moving to normal. It is very well understood. Our statements from our customers are unchanged and on time. That's the message. The third message, and that this is very important, it is that we're managing a very robust order intake of EUR 6 billion and a high probability to end the year with EUR 8 billion-plus. EUR 8 billion-plus driven by the Middle East investment mood, the power strategy in North America. Three places, three businesses that I guess are very important within our strategy and our future growth. Now let's follow with the two most important awards that have taken place this quarter.
That covers part of what I've said before. The first one is the big one. It's a $5 billion job by ourselves. It is the operation job. We have two customers, two very important customers, ADNOC and Exxon. Here, quantity is important. Obviously, $5 billion is important, quality is very important. It's very important if we want to take the part of this big investment momentum that is taking place in the Middle East. It is important because we need to have, and we are having, the trust of two of the most important investors. In this case, it's Exxon and ADNOC. Both, they know and differentiate well our capability. They understand very well our engineering capacity and our engineering quality. They understand extremely well our modularization capacity and technology, very much needed to take this job to a safe harbor.
They understand very well our capacity and quality to manage the construction on islands or very complex sites. The quality and the quantity of the job are very important, and we're extremely proud of this job. We're extremely proud that both customers have entrusted TR as a sole contractor. The next job, size is different, but in terms of our strategy, as important as the previous one. It's a power job. We're doing the engineering and procurement. It is Alberta, it is Canada, and it's power. We work here with Siemens turbines. This project very much validates our power strategy that we have presented to you on several occasions. It validates our North America strategy, and it validates our power strategy, which is very much driven by the enormous demand for the hyperscalers, as Meta happens to be this case.
You might be wondering why TR. Well, we have the strategy, but you have to know that Pembina is an old customer of us and understands well the quality of TR services and engineering capacities. Siemens as well, this is not going to be the first, nor the second, or the third project that we do with them. You all know that we're well-positioned now, not only in the U.S., but as well as in Canada. This job is good news. You have to be optimistic. You'll see more to come. There'll be more to come. Only with this talking about power, I'll hand the floor to Eduardo, who will definitely add some color to this.
Okay. Juan, thank you. Good morning, everyone. Finally, as Juan says, many other power projects are to come. Let me first elaborate about TR and the power generation business. During the first half of the year, we successfully completed the spin-off of TR Power, our power unit. This was a critical milestone that provided TR Power with a dedicated and focused structure to capture a huge opportunity of growth. The key message I would like to emphasize today is the size of the opportunity ahead of us. Historically, our power business generated a few hundred million EUR of revenues per year. More recently, at our Investor Day held in Madrid last October, we were targeting this business could deliver around EUR 1 billion of annual revenues. Today, however, the outlook is significantly stronger.
If we continue securing awards at the pace we are currently doing, EUR 2 billion revenues per year should not be a great challenge. In other words, we are potentially looking at a business that could double the size we forecasted only a year ago. This is why we are investing heavily in capabilities and talent. We are going to double our power workforce by the end of the year, ensuring that we have the engineering resources required to support this growth. As of June 30th, TR Power's backlog stood at approximately EUR 2.2 billion. In addition, we have a strong visibility on projects that have not yet been incorporated into the backlog. First, there is a EUR 1.1 billion power project in the Emirates, where we are already executing early works and where we expect the final notice to proceed by October.
Second, the three combined cycles we were awarded by RWE in Germany, representing around EUR 1.5 billion. Hopefully, the final notice to proceed will be received throughout the next 12 months. Artificial intelligence in the U.S., electrification in Europe, and industrialization in the Middle East are the three drivers that will support the massive growth cycle we are already facing. Rest assured, we are more than ready to be one of the main players to take advantage of this momentum. Let us now move to North America. North America is becoming one of the most strategic growth regions for Técnicas Reunidas. In 2025, we secure around EUR 70 million of early engineering services awards. Yes, in the first half of 2026, we have already reached EUR 52 million.
What is more relevant to me is to observe how our projects awarded a year ago are already transitioning from the pre-FEED and FEED stage to the engineering stage. We also expect some of these projects to enter in the EPC phase soon. In fact, our first project will be transformed into an EPCM before year-end if everything evolves as expected. Contract value will be around EUR 200 million. I would like to emphasize we are talking about an engineering, procurement, management and construction management project, because our policy is to minimize the risk of construction in America. Other ongoing early engineering services have the potential to evolve into approximately EUR 8 billion of EPCM awards during 2027 and 2028, providing us, obviously, a good visibility for future growth.
Eventually, I would like to emphasize the strong relationships we are building with many of the clients shown on this slide. Clients that allow us to capture opportunities in the U.S., but also in many other countries across America. The U.S. is, together with the Middle East, the largest investor in the future energy infrastructure, and we honestly believe we have been able to build an still small but very solid franchise in the United States. We are confident the U.S. will be the region where TR will deliver the highest growth in the coming years. Let us now turn to services, digitalization, artificial intelligence, and robotics. Services and digitalization/robotics/AI are tools that contribute to increase our efficiency and profitability, but also contribute to improve our market positioning since they strengthen our relationship with the top management of our clients. Starting with engineering services, momentum remains very strong.
During the first half of the year, we secured EUR 113 million of awards, and we expect to close 2026 at approximately EUR 375 million. A significant portion of this figure will come from North America, as we explained in the previous slide. This performance gives us increased confidence in achieving our objective of EUR 500 million of annual revenues by 2028, while maintaining gross margins around 30%. Regarding digitalization, artificial intelligence, and robotics, we are also making significant progress. We believe that digitalization and robotics will be transformational for our industry, but in the meantime, it is an unlimited source of productivity improvement and cost efficiencies that can potentially be converted into a competitive advantage or better margins. Two years ago, we fixed our target for cost savings at 1.5% of our revenues. According to our actual understanding, this is not a major challenge at all.
That is why we expect to invest around EUR 40 million in 2026 and increase the dedicated workforce up to 400 professionals by year-end. Before entering into the financial figures, allow me one last message from my side about our operations. We are aware Middle East, power generation in America gives us a unique opportunity to grow, but we do not plan to grow for the sake of growing. We remain committed to increasing our profitability. Services and digitalization will definitely contribute to improve our margins and our efficiency. Our traditional EPC activity will not miss its focus in delivering solid margins. Now the financial results. I have talked about revenues at the very beginning of the presentation, and I would like to focus now on margins.
This chart illustrates one of the most important achievements over the last 18 months, the consistent improvement in our profitability quarter after quarter. I would also like to emphasize this improvement has always been fully aligned with our guidance. Margin improvement is the result of a structural improvement in the quality of our business, driven by a more strict project selection during the commercial stages, the fulfillment of our SALTA strategy, and a disciplined execution with increasing operational efficiency. In this context, we are navigating the consequences of the conflict in the Middle East. We made an exhaustive analysis in the Q1, and we concluded the EUR 45 million provision was our best estimation of the impact on the quarter. We transparently communicated this impact to the market.
Last weeks, we have revisited our analysis and, based on the premise that the conflict ends in this Q3, we consider the EUR 45 million provision is still correct, and consequently, there is no need to modify the figure. Now let me finish with one of the clearest KPIs of TR's transformation in the last two years, the strength of our balance sheet. Our financial figures go on improving. TR net cash reached EUR 344 million in the first half of 2026, compared with EUR 332 million a year ago. Equity has followed the same positive trend, increasing from EUR 564 million to EUR 622 million, the highest level ever reached in TR's history. Eventually, as announced in previous quarters, we remain committed to our 30% payout policy.
First dividend will be paid from our 2026 results, the payment date will be communicated after summer. Now, Juan, I pass you back the floor.
Thank you. Thank you, Eduardo. Let me do a brief wrap-up. In this brief wrap-up, messages I think we have tried to make here in these presentations. EUR 8 billion awards for 2026 is not a challenge. That's the message. There's another message is Middle East projects are moving forward, and we've been executing well. Third, profitability, very much leveraged on service division and digitalization, is extremely well-focused. Those have been important messages. As we manage the business, there is a key message here that I like to transmit here. As investors, as an analyst, the message is that we're extremely well-positioned, very well-positioned in three very important business cycles, extraordinary business cycles. Well-positioned in the Middle East investments that are taking place. We're very well-positioned in the power investment cycle, Europe, Middle East, and most important, North America.
We are very well-positioned, extremely well-positioned, better than expected when we started two years ago in North America as an overall. That message is important, and I wanted to make it very clear in my final remarks. In terms of guidance, I guess these quarter results and maintaining the 2026 underlying, and let me underline, the underlying guidance shows that we're having a good performance. That this good performance obviously needs to be adjusted, as we did on the Q1, by the EUR 45 million provision three months ago. That's the message. We maintain our guidance, and I'd like to finalize with a message of optimism, as there is more to come. I'll open the floor to any questions you may want to pose.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Mick Pickup with Barclays. Your line is now open.
Good evening, gents. A nice set of results. A couple of questions, if I may. Firstly, just on the power side, you talk about doubling the headcount. What sort of numbers are we talking about on power? Just want to get the scale of that. Secondly, obviously, big awards this year. You're talking of EUR 8 billion EPCM over the next two years, plus the Middle East going in the right direction, plus Europe. If I think back to your medium-term guidance, your EPC target was only EUR 4.5 billion for 2028. We must be more in hand than that already, are we not?
Thank you, Mick, for the questions. We currently have around 800 people working in the power business, and we need to double it, so we need to move close to 1,500 people. That's the size of the operation. Maybe you wonder, where are we planning to recruit all those people? Obviously, here at home, we do not have resources enough, and the answer is simple. It's India. We are currently recruiting people, specifically specialized in that business. Regarding the second question, yeah, the figure is absolutely obsolete. We have to revisit the guidance for 2028, and probably by the end of this year, with full visibility of what is coming, probably we can tell you what's going to be the correct figure, but obviously, it's not going to be EUR 4.5 billion.
Yeah.
Obviously.
Just on that, clearly it is the lower margin bit of the mix that's getting bigger versus the services element. Are you still confident in that medium-term margin of 8%?
No. We have to revisit that margin. What we told the market was 10% from EPCs and something like 30% from services. If the percentage of growth of EPCs is higher and the growth of the volume of services, obviously, the average margin will be smaller. We should stick to the target of 10% coming from EPCs and something like 30% coming from services. The overall figure, the net global absolute margin will definitely be much bigger. That's obvious.
Okay, thank you.
Your next question comes from Kevin Roger with Kepler Cheuvreux. Your line is now open.
Yes, good evening. Thanks for taking the time. I have three, if I may. The first one is on an interesting comment that you just made, saying that if the situation normalized in the Middle East in Q3, the EUR 45 million provision will be enough. Just as a kind of sensibility analysis, because some of your peers, like Technip and Saipem, gave some guidance, assuming that the situation will last until the end of the year. If we place ourselves with this statement, situation until the end of the year, what kind of, let's say, additional provision should we assume? The EUR 45 million number that you took, that assume in a sense Q2, Q3 divided by two, or any color on the, let's say, potential additional cost that will, in a way, emerged from the Middle East? That would be the first question.
The second question is related to the maybe sequential improvement that you expect on the top line, H2 versus H1, because we are still close to EUR 1.5 billion something revenue in Q2. Is there any pickup that we should expect in H2? The third one is related to working capital. Working capital has been quite negative in H1, triple-digit number. What kind of dynamic do you expect for H2? Thanks a lot.
Working capital. Hi, Kevin. Thanks for the three questions. To talk about when the conflict in the Middle East is going to end, my answer is, one month ago, we all thought that the war was over. It's very difficult for me to analyze. I don't know how my peers can say that the war is going to last six months instead of three or instead of nine. Unfortunately, I think none of us know about that. As I told you before, we have tried always to be very transparent and very accurate. We have made our numbers for the next three months. We have seen which are the extra costs to come. We have seen how we can recover that from the client. We have analyzed the disputes with our suppliers, with our clients.
We've analyzed everything to come in the forthcoming three months, our estimation has been this EUR 45 is correct and enough. Frankly speaking, if I give you any kind of guidance about what could be the impact of the remaining three months of the year, I have to guess it, because the job we have done is exhaustive, is accurate. It's a thorough analysis. It's what happens in the next three months. Unfortunately, I cannot give you any additional information about what would be that impact if the war extends another three months. Regarding the second half of the year, you have the guidance. We plan to be around EUR 6.5 billion of revenues. You know where we are. This is math. This is something which is not a judgment. It's a fact.
We are confident that this EUR 3.5 billion for the second half is the right figure. The working capital, I don't want to look naive today. Today, working capital, today, the 30th of July, is not my main concern, and I'll tell you why. We are expecting another at least two additional billion euros of awards. We still have to collect the down payments from all the projects that have been awarded in the Q2 of the year. We are going to receive lots of cash from my clients. My main concern is how to use this cash as wisely as I can. I have always told you that the best thing I can do is to pass this money to my suppliers to force them to accelerate.
At the very beginning of the life of the projects, it's not that easy to pass that money. We will try to do it if we can. The only thing I can tell you about cash is by the end of the year, the final figure is going to be by far better than the existing figure.
Okay, understand. Thanks a lot.
Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Alvaro Bernal with Alantra Equities. Your line is now open.
Hi. Thank you for taking my question. Sorry, to go back on the provision. I just want to have it clear to see what has changed for your previous assumption of EUR 45 million being that the war lasted until June, and now that it lasts until Q3. Is it the fact that cost recovery with clients has gone better than you initially expected? If you can give some color there. Also, if you can give some color on the cash usage of this provision to date, it would be very helpful. Then the second question is just how your feelings on how negotiations with clients are going in general in the Middle Eastern region.
Is it more based on you see some clients struggling, or is it based on some countries which are suffering more, then clients are not fully trespassing the cost recovery because they're in that country? If you can shed some color there, it would be also very helpful.
Hi, Alvaro. Thanks a lot for the two questions. The provision. The provision is, I don't know how to describe it. It's an alive animal. New costs are coming. We are trying to reduce some of these costs by removing people from the countries to other geographies. We are recovering money from the clients. It's a fact that this provision is just the net effect of all the extra cost, less the money we are going to recover from the clients. That is the philosophy behind the provision. You are right. There are more costs than those we estimated three months ago, but we are recovering more money than originally expected, and that's why we believe this is the right figure.
In terms of cash, it's a bit difficult for me to give you an answer, because the idea is it is not there is a cost of EUR 45 million, and there will be a cash out of EUR 45 million because it is not the case. We will collect money from the clients. We will pay our suppliers. What is clear to me is that, well, give or take, most of these extra costs and most of these extra collections will have to happen within this year. That's my feeling, but that's just common sense. We have to solve the problems with the clients, with the suppliers, and it has to be done now. I'm sorry, I cannot give more color. Also, I have to be honest to you, I don't want to give more tips to my clients and suppliers because I am negotiating with them.
I cannot enter into a deeper analysis. The feeling of clients in the Middle East, when we are talking about We have not called it super cycle, but we are talking about a huge volume of investments are coming in the Middle East. This means that our clients are trying to be supportive. I think that this is the global message. Obviously, there are many different clients. The richest clients tend to help us as much as they can. Those that have smaller money, obviously, they are not that generous. It's a fact. The overall feeling is those guys want to invest. Europe, here in Europe, everyone is talking about reconstruction, destruction. When we travel to Saudi, to Emirates, yes, obviously we have to reconstruct something.
The main message is we want to invest and we want to do it as fast as possible. That's the message we see from them. The immediate consequences, as I told you before, we have the feeling the clients are being supportive now. I mean, the big main clients.
Understood. Thank you.
You're welcome.
Your next question comes from Robert Jackson with Banco Santander here. Your line is now open.
Hi, good afternoon, gentlemen. Just wondering if you can give us some more granularity regarding the breakdown of the project exposure you have in the Middle East, and the level of execution of the three or four main projects you have in the Middle East, just to get a better understanding of where some of the risks may be in the second half of this year. I don't know if you may be able to give us those details. Thank you very much. That was my only question.
I have to be careful. Again, I have to provide you a good answer, but I don't want to enter into many details if I can. One of the reasons why the provision is somehow limited to this EUR 45 million has to do with the fact that most of the projects we have in the Middle East are in very early stages, or in the very last stages of construction, or even in the final negotiation stages. Those projects where you are still in the engineering phase or you are procuring equipment, and those projects that all the equipment has arrived to the site, and your only pending activity is to construct, are not significantly affected by the conflict. The only thing is there are only two projects in two different countries which are in a phase where we still have to enter big equipment into the countries.
We have the Strait of Hormuz closed. It's a fact. What we are working together with our clients is how to enter this equipment through different routes. I cannot give you more details, but only two big projects are being affected. We are working together with the client how to solve the logistic difficulties to enter this equipment in the countries. This is the big problem we are facing there.
Thank you very much, Eduardo. Fair point.
You're welcome.
There are no further questions at this time. I will now turn the call over to management for closing remarks.
Okay, we are done. Thank you very much for all of you for listening to this Q2 presentation. If some of you can take some holidays, take it, because it's about time. We'll be talking to you, I guess, on the Q3, which is the second week of November. I do guess. Again, thank you very much. If you have any further questions, you can call Antonio.
Thanks so much.
Okay. Bye-bye. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.